Correlation Between American Eagle and Childrens Place

Can any of the company-specific risk be diversified away by investing in both American Eagle and Childrens Place at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining American Eagle and Childrens Place into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Eagle Outfitters and Childrens Place, you can compare the effects of market volatilities on American Eagle and Childrens Place and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in American Eagle with a short position of Childrens Place. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Eagle and Childrens Place.

Diversification Opportunities for American Eagle and Childrens Place

0.69

Correlation Coefficient

American Eagle  Childrens Place

Poor diversification

The 3 months correlation between American and Childrens is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Childrens Place in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Childrens Place and American Eagle is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on American Eagle Outfitters are associated (or correlated) with Childrens Place. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Childrens Place has no effect on the direction of American Eagle i.e., American Eagle and Childrens Place go up and down completely randomly.

Pair Corralation between American Eagle and Childrens Place

Considering the 90-day investment horizon American Eagle Outfitters is expected to under-perform the Childrens Place. But the stock apears to be less risky and, when comparing its historical volatility, American Eagle Outfitters is 3.3 times less risky than Childrens Place. The stock trades about -0.47 of its potential returns per unit of risk. The Childrens Place is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,013  in Childrens Place on November 19, 2024 and sell it today you would lose (40.00) from holding Childrens Place or give up 3.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

American Eagle Outfitters  vs.  Childrens Place

American Eagle Outfitters

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Eagle Outfitters has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Childrens Place

Risk-Adjusted Performance

Very Weak

Over the last 90 days Childrens Place has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with American Eagle and Childrens Place

The main advantage of trading using opposite American Eagle and Childrens Place positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Eagle position performs unexpectedly, Childrens Place can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Childrens Place will offset losses from the drop in Childrens Place's long position.

The idea behind American Eagle Outfitters and Childrens Place pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.